Maximising the protection of privilege

Breadcrumb

When clients approach lawyers for legal advice and assistance, they want and need to be able to speak freely. That means confidentially in the knowledge that their lawyer won't be obligated to reveal to a third party what advice they have given. In other words, the advice is treated as being privileged.

This article looks at Privilege for In-House Counsel. It starts by looking at why privilege is important, how it protects the business and how it might be lost. It then includes up to date tips for maximising the protection of privilege including managing internal corporate communications, considering the status of internal investigations including into employee misconduct and managing communications between you and third parties.

Why is privilege important?

In litigation in England and Wales there is a stage called Disclosure which requires the parties to formally state that documents or classes of documents exist.

Usually the Court will order parties to disclose documents on which they rely, which adversely affect their or their opponent’s case or which support their opponent’s case. The disclosing party's opponent is entitled to inspect a disclosed document. One exception is any document that is legally privileged. For reasons discussed later in this article, the position of in-house lawyers in relation to privilege can be tricky.

Knowledge can be power. You might not want certain documents to be shown to your opponent in case they undermine your case. This is illustrated by the facts of the following two cases:

Three Rivers District Council –v- Bank of England [2004] UKHL 48

When the Bank of Credit and Commerce International (BCCI) collapsed in 1991 with huge liabilities, it was riddled with fraud. This received huge media attention. The Bank of England (the Bank) had a supervisory role in relation to BCCI. There was an independent inquiry into that supervision called the Bingham Inquiry. There were questions about what the Bank knew, whether it should have known more and whether it should have acted differently.

Freshfields were retained to advise the Bank. They gave advice as to the preparation and presentation of the Bank's evidence to the Bingham Inquiry. In 1992 the Bingham Report was published. In 1993, 6231 depositors in BCCI sued the Bank for their losses. They needed to show that the Bank had acted in bad faith (which was a high threshold to overcome). They therefore sought as wide a disclosure as possible to help them get over that high hurdle. The extent of the Bank's disclosure obligation was argued all the way up to the House of Lords. The House of Lords determined that privilege attached to legal advice as well as advice as what to do in the light of it. Advice that had been given to the Bank on how to present information was privileged.

In the end, the Liquidators dropped their claim against the Bank and the Bank was awarded £73.6 million in costs.

Mr Al Fayed and others were arrested on suspicion of theft or criminal damage in respect of the alleged theft of and damage to the contents of a safe deposit box kept at Harrods. The arrests has adverse publicity. Mr Al-Fayed was released and not charged. He contended that his arrest was wrongful and that the metropolitan police commissioner was liable for false imprisonment. The police argued that the arrest was lawful and had been done with reasonable cause. They relied on a legal opinion by Senior Treasury Counsel. That document, together with subsequent opinions, were inadvertently sent to Mr Al Fayed's solicitors as part of the process of inspection. The Police Commissioner subsequently tried to argue they were subject to legal professional privilege and public interest immunity.

The Court decided that where a party had inspected documents subject to privilege which had been mistakenly disclosed and where it was not obvious to Mr Al Fayed's solicitors that a mistake had been made, the inspecting solicitor could keep and make use of the documents.

(Mr Al Fayed subsequently lost his damages action against the police for false imprisonment).

How does privilege protect business?

There are different types of privilege, the main two strands being legal advice privilege and litigation privilege.

Legal advice privilege applies to:

confidential communications

which pass between a client and their lawyer

which have come into existence for the purpose of giving or receiving legal advice in the relevant legal context.

Litigation does not need to be pending for legal advice privilege to apply.

Commercial advice from a lawyer (e.g. relating to business strategy) is not protected by privilege. It has to be a communication between a lawyer and a client. In this context, a lawyer means a solicitor, a barrister, an in-house solicitor or qualified legal executive. It does not include paralegals or trainee solicitors unless they are properly supervised by a qualified solicitor in accordance with the SRA requirements and Law Society guidance (in which case their work is classified as being the work of a legal department rather than the advice of the paralegals or trainees themselves).

Litigation privilege applies to confidential communications between a lawyer and a client or between a lawyer/client and a third party which is made for the dominant purpose of giving and/or receiving advice in relation to litigation or collecting evidence for use in litigation. The litigation must be pending, reasonably contemplated or existing.

Instructions to an expert are not privileged.

Other types of privilege include:

Joint privilege (eg where parties retain the same solicitor to advise them on a transaction). If they do this, they are normally entitled to see any privileged communications to which they have not been a party and are not entitled to claim privilege against each other in respect of those in any future litigation, nor to waive privilege unilaterally

Common interest privilege. This preserves privilege in documents disclosed to third parties. It tends to be in a litigation context (but also applies to legal advice privilege) where one party discloses a privileged document to a third party who has a common interest in the contents of the privileged document. If it applies, the document in the possession of the recipient remains privileged. Obvious examples include insured and insurer, companies in the same group and agent and principal type relationships

Without prejudice privilege. This is considered in a separate briefing paper

Losing privilege

Some examples of when privilege can be lost:

Statements of case. Once this has been served, privilege cannot subsequently be claimed. If a document is quoted in full in a statement of case, confidentiality will almost certainly be lost. This was highlighted in Property Alliance Group Limited v Royal Bank of Scotland plc [2015] EWHC 1557 (Ch) in which RBS claimed privilege over documents provided to regulators as part of the ongoing LIBOR investigations. The Court was inclined to agree that the documents were privileged as part of the investigations, but RBS had waived privilege by relying on the documents in its defence. Litigators should therefore ask whether reference to a document in a statement of case is really necessary.

Witness statements – they may only be used for the purpose of the case in which they are served (CPR 31.12). If the case does not reach trial or the witness is not called, privilege in the statement may be claimed in a subsequent claim against a third party. Parties have a qualified right to inspect documents mentioned in a witness statement. In Commodities Research Unit International (Holdings) Limited v King and Wood Mallesons LLP [2016] EWHC 63 (QB) the Court decided that it was not sufficient for a witness to maintain privilege over a document which the witness relied upon by simply saying that privilege in the document had not been waived.

Affidavits. These are treated differently to witness statements. Once served, an affidavit is not confidential and privilege cannot be claimed against a third party in subsequent litigation. CPR 31.14 allows a party to inspect documents referred to in an affidavit (unless they cease to rely on them).

Experts reports. Don't disclose privileged documents in instructions to experts. The service of a report waives privilege in relation to the report and documents it refers to.

Inadvertent disclosure. This is dealt with by CPR 31.20. A document accidently disclosed can be used with the Court's permission. The Al Fayed decision sets out factors the Court will take into account.

Overseas proceedings. Foreign Courts have their own rules on disclosure and privilege. It is best to obtain local law advice.

Criminal purpose. If the communication came into being to further a criminal design, privilege may be lost.

Waiving privilege

Privilege can only be waived by the client, not the solicitor. Proctor v Smiles (1886) 55 L.J.Q.B. 467 at 527, 528, CA. Waiver can happen in different ways:

Loss of confidentiality in the document

By express or implied waiver

Placing a privileged document before the Court.

Where privileged documents have been disclosed to an in individual on express terms that privilege in them is not waived, then privilege will not be lost in those documents (B v Auckland District Law Society [2003] UKPC 38 (although this is only persuasive and not binding authority)). This approach was also taken in USP Strategies v London General Holdings Ltd [2004] EWHC 373 (Ch).

The Courts have also recognised the possibility of a limited waiver of privilege. Privileged documents may be disclosed to a third party on the basis that they will only be used for certain limited purposes (Berezovsky v Hine & Ors [2011] EWCA Civ 1089).

In Farm Assist Ltd v Secretary of State for Environment Food and Rural Affairs [2008] EWHC 3079 (TCC), Ramsey J clarified that implied waiver of privilege is limited to the narrow situation of proceedings between a solicitor and client. (This is because, when a client sues their solicitor, the client effectively "invites the Court to adjudicate the dispute and thereby... waives privilege and confidence to the extent that it is necessary to enable the Court to do so fully and fairly in accordance with the law" - see Lillicrap v Nalder (a firm) [1993] 1 WLR 94 (CA).) There is no general rule that, where a party raises an issue in respect of which there is relevant evidence covered by privilege, that party must by implication be taken to have waived privilege in that evidence.

FAQs about waiving privilege

Will waiving some of several documents waive privilege as to the others? No. Kennedy v Lyell (1883) L.R. 23 Ch.D 387, CA

If part of a document is put into evidence, will privilege be waived for the whole? Yes, unless the remaining part deals with entirely different subject matter. Great Atlantic Insurance Co v Home Insurance Co [1981] 1 WLR 529

If part of a letter is disclosed, will privilege be waived in relation to the whole? Yes, unless the other parts of the letter are so distinct as to amount to different documents. Pozzi v Eli Lilley, The Times, 3 December 1986

The fundamental question is whether in the light of the matters disclosed, it would be unfair to allow the party making the disclosure not to reveal the whole of the relevant information because it would risk the Court and the other party having a partial and potentially misleading understanding of the relevant material. Brennan v Sunderland City Council [2009] I.C.R, 479, EAT

In the disclosure stage of litigation, am I entitled to redact from a document parts of it which are privileged? Yes. This is not a question really dealing with waiver. See GE Capital v Bankers Trust [1995] 1 WLR 172.

Particular issues for in-house lawyers

Legal advice is privileged. However business advice or administration is not privileged. This can make things more complicated for in-house lawyers who tend to have a broader role than solicitors in private practice. In-house lawyers should therefore avoid including any communications which relate to their executive and/or business function in the same documents in which they give legal advice, or they could risk losing privilege in the whole document. If this is not possible, try to structure them with a view to subsequent redaction.

In EC competition law investigations, communications with in-house lawyers are not treated as being privileged because they are not regarded as sufficiently independent.

Effective processes: seven top tips

It is important to put in place the right processes to maximise the protection of privilege.

Files. You should separate legal material from non-legal material into different files. You should keep files in good order so that documents are not inadvertently mis-filed. You should keep an accurate record of relevant dates so that you can show a definitive date at which litigation was in contemplation. Mark folders similarly if physically circulating privileged documents (use folders you cannot see through).

You should be careful not to create (or be sent) documents that do not meet the "dominant purpose" test when litigation is in contemplation.

Make sure all documents are created by or channelled through a lawyer.

You should not forward or reply to emails containing privileged material. Instead, start a new email.

Do not bring any third parties' documents into your control if litigation is in contemplation.

You should not store privileged material on network drives or shared folders.

When requesting legal advice mark communications "Privileged and Confidential: Prepared for the purpose of obtaining legal advice/prepared for the purposes of litigation or arbitration."

Sort out security

You should consider discussing sensitive matters verbally with no record being made, although that can create different problems such as then not having a contemporaneous record of what was said, should that be needed subsequently in verifying facts for say a report to the board or if the matter were to subsequently become litigious by which stage witness memory may have faded.

You should limit the number of people with whom you communicate on sensitive issues.

You should identify who in the team will make major decisions and communicate with the legal advisors.

You should consider keeping a centralised circulation list for legally privileged documents, indicating who the documents were circulated to and when, to help protect the confidentiality element.

Consider your audience

Write emails and documents as if a Judge may one day read what you write. Make your communications as clear as possible so they can be understood by somebody who may not be aware of the full background.

Education, education, education

Train non-legal employees about privilege and refresh that training periodically to deal with leavers and joiners and memory fade. For instance, ensure they understand the significance of the "client" group for protecting legal advice privilege.

Consider whether an internal policy document is needed to cover privilege and, if so, how that would be effectively communicated.

Internal fact finding investigations

Where there has been a health and safety incident, loss of money, fraud, loss of data, breach of duty and/or whistle blowing within an organisation, the board or the business will typically ask the legal team to embark upon a fact-finding mission.

If there is a real likelihood of adversarial proceedings, litigation privilege will apply. If there is no such likelihood, but lawyers are involved, they will be advising in the relevant legal context. An investigation ought, therefore, to be led by lawyers (internal or external) and they also ought to be conducting any interviews. A written or oral report including both the facts and legal analysis should be done by the lawyer.

Data rooms

As part of a corporate transaction, a data room might be made available to a buyer of a company. A buyer may well wish to know about litigation which the seller is involved in. In this sort of circumstance there is a risk of inadvertent waiver of privilege by destroying confidentiality. Our five practical tips are:

It might be possible to draw up a common interest privilege agreement to evidence the basis upon which the information is supplied.

The seller should ask the buyer for an undertaking to hold the information in confidence.

The seller might allow the buyer to inspect the information but not to take copies.

The seller should restrict access to the buyer's solicitors and get an undertaking from the buyer not to waive privilege in their solicitor's notes.

Use a secure, password protected FTP site, not Dropbox.

FCA investigations

Legal advice on liabilities under FSMA is privileged.

Legal advice on presentation of facts to the FCA is likely to be privileged.

If you decide to provide the FCA with privileged documents, consider an express non-waiver agreement to ensure privilege is not waived against anyone other than the FCA.

And finally…

On 28 July 2016, the Law Society launched a consultation about its new draft practice note on legal professional privilege. It considered that privilege had been challenged by some parts of government and regulators. The consultation closed on 9 September.

Stay informed

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